News / CH Robinson still bullish and focused on market share, despite 'disappointing' Q2

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CH Robinson has blamed higher expenses and fewer “transactional” shipments for its “disappointing” Q2 results. While revenues rose 11.3% for the second quarter, year-on-year, to $3.2m – 14.1% for the first half – net income fell 2.4% for the quarter, to $111.872, or 2.7% for the first half, to $215,215.

Speaking to investors in yesterday’s earnings call, John Wiehoff, chairman, CEO and president, said: “We are disappointed this year in the earnings growth… Did we expect, at the beginning of the year, that 2013 would be a great year or the high-end of our performance? No. Has it been a little bit more disappointing than what we thought at the beginning of the year, largely around expenses? Yes, it has been.”

The company acquired Polish truckload company Apreo Logistics last year, shortly followed by freight forwarding company Phoenix International, as it looked to increase its presence in Europe and grow its freight forwarding arm. The costs of integration have been slightly higher than anticipated, said Mr Wiehoff. “I would say that integration spending has been as meaningful as we expected, maybe a little bit more. Margins are difficult to predict, but we really haven’t seen any relief there. And we’ve had some unusual expenses in the first two quarters.”

Noting that the global freight forwarding environment had been “difficult”, Mr Wiehoff added that “it’s a fairly weak market out there”. Price decreases in air and ocean added to the slide.

Despite the poor environment, the company revealed that global forwarding net revenues comprised 18% of total transport net revenues in the second quarter, up from 8.5% last year. And the company pledged to continue to take market share.

While a year or two ago, many forwarders appeared to be lowering prices to seal major global accounts, fewer now seem prepared to take on loss-making accounts purely to boost market share. Mr Wiehoff said it was a difficult balance to make. “We will continue to aggressively go after market share. We’ve got very good disciplines around making sure that the freight that we bring is profitable and sustainable… So while at some point we walk away from freight every day, and we have to be smart about the balance between pricing and margins, and the labour resources and the cost that we have to commit to doing it, we are very much, like our customers, in the mode of accepting the productivity challenge and working into that equation that we’re going to automate things and we’re going to look at process improvement.

“The challenge with it, as everybody knows, is those things come in small chunks and they come continuously. It’s really part of a continuous improvement.”

The financial publication Morning Star noted sluggish pricing in the truckload environment. “We think one of the chief causes is the firm’s gradual migration to large, price-committed accounts, for which it essentially acts as a core carrier. These accounts are a double-edge sword, in that Robinson is able to leverage its vast network service capabilities to win sticky, scheduled freight in a static demand environment, but these loads tend to be on lanes with rate-per-mile commitments, which boost margin risk.”

The management team also acknowledged the competitive marketplace and a reluctance on behalf of shippers to use the spot market, said Mr Wiehoff,  adding that shippers wanted to cut out surges, seasonal premiums and costs. “I do think that’s one of the most meaningful secular shifts, just driven by how customers are managing their supply chains and what their procurement attitude is towards transportation.”

Europe, where CH Robinson has become a more significant presence, contributes to some 7% of the company’s volumes and 4% of net revenue. Falls in its intermodal business and “sourcing”  – impacted by a wet spring in the US which disrupted some crops – was balanced by a rise in transport management services.

Despite the results, Mr Wiehoff remains bullish. “We feel pretty good about our ability to take market share and our ability to continue to do that in the future. In a slower growth environment with more competition it’s more difficult to take market share, but we feel like we can continue to do that… we do think that a double-digit target is still reasonable for us, even in a slower growth environment.”

Rival Agility, meanwhile, reported a net profit of KD11.5m (€30.4m) for the second quarter of 2013, up 50% on the same period last year. Revenues and EBITDA stand at KD355.2m (€939.4m) and KD23.7m (€62.7m), respectively, up 2% and 26% over Q2 of 2012.